Monday, July 21, 2014

Bills of Lading

In a separate blog post I wrote about Incoterms. Since shipments require bills of lading I decided to do a post on them. A bill of lading has multiple functions. The principal use of the bill of lading is as a receipt issued by the carrier to the seller once the goods have been loaded onto the carrier or vessel. The receipt can be used as proof of shipment for customs and insurance purposes. It can also and be proof of completing a contractual obligations such as when Incoterms are CFR (Cost and freight), EXW (Ex-Works), or FOB (Free on Board). The bill of lading can also function as evidence of the contract of carriage. It is not a contract of carriage per se, but can be made one if the Hague-Visby rules were annexed to the Bill of Lading or other terms creating a contract of carriage are printed on the reverse side. Normally there will be a separate agreement between the seller (or buyer) and carrier.

Legally the carrier is a legal consignee of the goods. A bill of lading may also list the buyer of the goods as the consignee. The two are different. Thw freight forwarder is named by the seller (or Buyer depending upon the delivery term) for delivery to a specific point. The take possession or arrange for the carrier to take possession. The freight forwarder is considered to be the owner of the consigned goods for the purpose of filing the customs declaration and for paying any export duties, taxes or fees. The freight forwarder will further consign the shipment to the carrier. The consignee is listed on a Bill of Lading is the Buyer or a third party designated by the Buyer. If you use the FIATA bill of lading the parties to the transaction would be defined as follows:
a. Freight Forwarder is the company that issues the Bill of Lading
b. Merchant is used to identify the shipper
c. Consignor is the seller of the goods.
d. Consignee (is the buyer of the goods

The freight forwarder and the merchant have certain rights and obligations in conjunction with the consignment that are listed on terms on the reverse side of the bill of lading. There are multiple types of bills of lading. An ocean bill of lading is a document required for the transportation of goods overseas. An ocean bill of lading serves as both the carrier's receipt to the shipper and as a collection document if payment by the consignee is required. Ocean bills of lading may be negotiable or non-negotiable. A non-negotiable ocean bill of lading allows the buyer to receive the goods upon showing identification. If the bill is deemed negotiable, then the buyer will be required to pay the shipper for the products and meet any of the seller's other conditions established on the bill of lading. If the goods are to be initially shipped over land, an additional document, known as an "inland bill of lading", will be required. The inland bill only allows the materials to reach the shore, while the ocean bill allows them to be transported overseas.

Bills of lading need to be consistent with the Incoterms rule selected. For example, if the sale was ex-works the seller’s dock, the seller would not create a bill of lading as it is the buyer’s responsibility to arrange for shipment from that point forward. If the sale was FAS or FOB the seller would only complete an inland bill of lading to get it to the port and the buyer would need generate an ocean bill of lading or a multimodal bill of lading. If the delivery point was after the port of export but prior to the port of import the seller needs to complete the ocean bill of lading. Once the goods are at the port of import, the buyer would need to generate an inland bill of lading to get the goods to the point of delivery. The exception to that would be if the seller sold the items DDP wherein the seller would be responsible for generate the inland bill of lading in the export country, the ocean bill of lading, and an inland bill of lading for the import country.

In most international transactions you would use a multimodal bill of lading. The information provided on that bill of lading includes the following.
1. The ship from address
2. The ship to address
3. The bill of lading number and bar code
4. The carrier name, trailer number and serial number
5. Who and third party freight charges are to be billed to.
6. The SCAC (Standard Carrier Alpha Code) that identifies the specific carrier and pro number (a progressive number used to track shipments
7. Any special instructions..
8. Whether the freight is prepaid, collect or will be paid by a third party.
9. Customer order information
a. Customer order number.
b. Number of packages.
c. Weight
d. Whether its in a pallet
e. Any additional shipper information
10. Carrier Information
a. Handling unit quantity and type
b. Package quantity and type
c. Weight
d. Whether the shipment contains HM (Hazardous Materials)
e. Commodities requiring special care
f. NMFC Number and class code that defines the National Motor Freight Code and class for the materials shipped.
g. If the goods are being shipped independent of value, the declared value of the goods.
h. The COD amount is shipped COD.
i. The fee terms (whether prepaid, COD or customer check is acceptable)
11. A limitation of liability on the shipment.
12. A signature of the shipper if they do not want delivery without payment.
13. Shipper and Carrier signatures and dates.
14. Responsibility for loading the goods on the carrier (shipped or carrier)
15. How freight is counted (by shipper, by driver pallets or by driver pieces)

If you used the FIATA negotiable multimodal transport bill of lading there are terms on the reverse side that contain the following sections:
e. Freight forwarder who issues the B/L
f. Merchant (the shipper)
g. Consignor (the seller)
h. Consignee (the Buyer
i. Taken in charge (hand over by consignees and accepted by freight forwarder)
j. Goods

Titles of the specific terms are:
Applicability (makes terms apply even if only one mode of transport is used)
Issuance of FBL (Once issued Freight Forwarder assumes responsibility to delivery and liability)
Responsibilities of freight forwarder
Negotiability and Title to Goods (see below)
Dangerous goods and liability (requirement of notice of and liability if not described_
Description of goods and merchant’s packing (Consignor guarantee Goods are as decribed)
Freight forwarders liability (Limitation of Liability)
Paramount Clauses (incorporates laws (the Hague Rules, the US Carriage of Goods by Sea)
Limitation of Freight Forwarders Liability (limits liability to value of the goods)
Applicability of actions in tort (terms of the contract apply whether action under contact or tort)
Liability of servants and other persons (
Method and route of transportation (provides freight forwarder right to make changes to these)
Delivery (delivered when handed over or made available to the consignee)
Freight and charges
Liens (Provides the freight forwarder with a right to place a lien on the goods)
General average (Actually an indemnity the Merchant provides to the freight forwarder)
Notice (Require notice of loss or damage. If no notice prima facie evidence delivered as described)
Time bar (Period in which to bring suit under the BoL
Partial invalidity (the same as severability where if one part is invalid the remaining will apply)
Jurisdiction and applicable law (based upon the Freight Forwarders place of business)

One of the key things within the Multimodal a bill of lading is the negotiability and title section that reads as follows:
3.1 This FBL is issued in negotiable form unless marked non-negotiable. It shall be constitute title to the goods and the holder, by endorsement of this FBL, shall be entitled to receive or transfer the goods herein mentioned,
3.2 The information in this FBI, shall be prima facie evidence of the taking charge by the Freight Forwarder of the goods as described by such information unless contrary indication, such as shippers weight, load, and count, shipper packed container, or similar expressions has been made in the printed text or superimposed on this FBL. However proof to the contrary shall not be admissible when the FBL has been transferred to the consignee for valuable consideration who in good faith acted thereon.

What does that mean with respect to title in the goods. It means is when you use a negotiable bill of lading the freight forwarder is given title to the goods and can transfer title to the consignee as long as the consignee 1) has paid for the goods and 2) acted in good faith. What it would also mean is seller would be prevented from submitting proof under contract that title did not transfer under their contract with the buyer until payment or that a security interest existing in the goods.

If you use a non-negotiable bill of lading, the bill of lading confers what is called a prima facie title over the goods to the named consignee listed on the Bill of Lading. Prima facie means “accepted as correct until proved otherwise”. This means that under the "nemo dat quod non habet" rule the freight forwarder and subsequently the Merchant (carrier) cannot transfer to the consignee better title than the freight forwarder has. This means that the seller may legally retain title until they are paid. The seller could also retain title until a specific point in the delivery process where there is delivery to the buyer in accordance with the agreed Incoterms rule. The seller could also retain a security interest in the goods.

In getting a prima facie title the carrier may place an encumbrance or have security interest against the goods. If the full title is not granted to the freight forwarder who delivers them to the consignee, the consignee has rights but the seller’s rights in the goods have priority over the consignee’s rights. The prima facie title would allow the consignee to have certain rights in the material. For example they would have the right to withhold releasing the goods to the named consignee (buyer) if they are owed monies. The freight forwarder or carrier also can’t simply sell the goods to recover what they are owed as they don’t have full title to make the sale. In many jurisdictions there is a legal process they would need to follow in which they would need to notify the owner of the title to allow them to make payment before selling the goods.

The UCC makes a slight distinction about the title when it comes to creditors rights with respect to the consigned materials. In those situations the consignee is deemed to have rights and title to the goods identical to those the consignor had or had power to transfer. It also goes on to say that if the consignor had perfected a security interest in the goods, that interest has priority over the rights of the consignee.
Negotiable bills of lading may function as negotiable instrument and be traded in much the same way as the cargo, and even borrowed against if desired. A non-negotiable bill of lading can’t be borrowed against because the freight forwarder and Merchant (carrier) only have prima facie title and the Consignor’s title in the product takes precedence over their rights.

One main point to take away from this post is when making a shipment always make it clear whether the Bill of Lading is negotiable or non-negotiable. The way the FIATA multimodal Bill of Lading, the default is that it is negotiable unless you specifically mark it otherwise. If you fail to make what should be non-negotiable, as non-negotiable you will lose the right to introduce evidence to the contrary if you where you could seek to recover the goods for non-payment by the buyer. Personally, I would never sell under credit terms and use a negotiable bill of lading.